Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must know two things about you:  your ability to repay the loan, and if you will pay it back.  To figure out your ability to repay, lenders look at your debt-to-income ratio.  To assess your willingness to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed.  Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here. 

Credit scores only take into account the info in your credit reports.  They don't consider income or personal characteristics.  These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is in the present day.  Credit scoring was developed as a way to consider only that which was relevant to a borrower's willingness to repay the lender. 

And to complicate things even further, there are three different profiling systems available, Beacon, Empirica, and FICO.   

Your current debt level, past late payments, length of your credit history, and a few other factors are considered.  Your score results from both positive and negative information in your credit report.  Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

To get a credit score, borrowers must have an active credit account with six months of payment history.  This history ensures that there is sufficient information in your credit to build a score.  If you don't meet the minimum criteria for getting a credit score, you might need to establish your credit history before you apply for a mortgage.